A new way of financing public services gains momentum

AT HALF past six on a wet morning in central London, the city is already busy. Baristas are setting up inside coffee shops. Office cleaners are at work. And outreach teams from charities and local councils are on early-morning shifts to find rough sleepers and get them off the streets.

For most teams the priority is to find people who are newly homeless and help find them accommodation quickly, before they become settled in a pattern. Kath Sims, an outreach worker for a homelessness charity called St Mungo’s, is not looking for the new arrivals, however. She is trying to locate people in a specific group of 415 habitual rough sleepers, with the aim of prising them from the streets.

That puts her at the front line of a big financial experiment, too. Her work is being funded by an instrument called a “social-impact bond” (SIB), which promises returns to private investors if social objectives are met. The bond raised £5m ($8m) from investors, to be shared between St Mungo’s and another organisation called Thames Reach (responsible for another 400-or-so homeless people).

The cash will fund a three-year programme, the success of which is measured by everything from the number of nights that the rough sleepers spend on the streets to their visits to hospital. As targets are met, payments will flow to investors from the Greater London Authority (GLA), the SIB’s commissioning body.

The arrangement suits all parties. The rough sleepers are frequent users of government services, including accident-and-emergency wards. Cutting their number should save the GLA enough money to fund payments to investors if goals are met. At a time when public spending is under pressure, the taxpayer stumps up only if results are achieved. Investors have the prospect of a return to entice them, of up to 6.5% if targets are met.

As for organisations like St Mungo’s, they get upfront funding for a longer period than they would in a normal government contract. That matters. One of the people Ms Sims checks in on is a long-time rough sleeper with a history of violence, a drug habit to feed and a string of prison sentences. She needs time to build a relationship with him: stopping to say hello and roll him a cigarette is part of that process. Coaxing him into a hostel is not the right approach: he’d only end up in a fight and have an eviction on his record, which would make it much harder eventually to place him in permanent accommodation. The priority is to get his drug abuse under control by shifting him to methadone, at which point it becomes possible to think about accommodation. It all takes time.

The homelessness SIB is one of 14 that have now been issued or are in development in Britain, which pioneered the instrument back in 2010 with a bond funding a prisoner-rehabilitation programme in Peterborough. The idea is also winning fans elsewhere. New York city launched a SIB last year tackling recidivism among inmates at Rikers Island prison; Goldman Sachs is among the investors. Work is under way on three more American SIBs, one in New York state and two in Massachusetts. Jeffrey Liebman, a Harvard University professor who is providing technical assistance on all three, has just invited applications from other state and local governments to receive help setting up SIBs: 28 applied.